Match each pay-period w/ Las day 1,000 hour

[austin3515]

Employer decides to deposit employer contributions every single pay-period. Document says last day rule / 1,000 hour requirement.

Wouldn't it be a cut-back to then forfeit the contribution for those employees who ultimately do not meet the allocation requirements? To me, it seems that the employer clearly decided NOT to impose allocation conditions on the profit sharing contributions, or that should at least be what a reasonable participant's interpretation would be.

[12AX7]

I would see this situation as a failure to follow the terms of the plan. The employer should not have discretion to override any provision of the plan, unless through perhaps a corrective amendment. In my opinion it wouldn't be a cutback where the participant would not have otherwise accrued the contribution.

[austin3515]

If I was a participant and you yanked $2,000 from my account on account of the fact that I terminated before the last day of the yea,r I think I would have a pretty legitimate gripe against you. Now it's only $2,000 so I probably wouldn't hire an attorney or anything. The implication of someone depositing money intot your account is that you've earned the right to an allocation. Forget all this legal mumbo jumbo - the regular particpant figures it's his!! And that's gotta count for something in this analysis.

[12AX7]

From a participant's perspective, I can understand the emotional impact of something like this occurring, but it would not justify (to me) allowing the conribution to "stick" where it had not been accrued. What about a situation for example where a participant was allocated $2,000 in excess of the correct amount and this would require a similar action? On the surface, these two examples appear the same to the participant and in both examples, we have forfeited the excess allocation.

What about a corrective amendment to remove the allocation conditions, or was this an isolated incident that occurred to one or a few participants for the year?

[Guest Sieve]

It would be poor administrative practice--and & even poorer consultant/TPA/attorney advice--to deposit a match on a payroll basis with a last-day rule in the Plan. On the other hand, if the SPD is clear that a participant must be employed on the last day of the year (& or complete a y/s) in order to receive a match allocation, then I have no problem removing the allocation from someone who did not meet those requirements (actually, it's not a forfeiture). It would be better, in that case, to have a conditioanl allocation account to hold those deposits--but, even without that, I don't see a problem. It's really advanced deposits that are being made for potential matching contributions.

If the participant does not read the clear language of the SPD, that's the participant's problem. And, besides, it's not a violation of the Plan to deposit contributions on a payroll basis with an end-of-year allocation requirement, because the plan document does not generally discuss the regularity of depositing the match (only tht it must be deposited by X date).

[Tom Poje]

Sieve hits it right on the nose. this is simply a poorly administrated procedure. if you are going to deposit amounts on a payroll basis, you best put all such contributions in an 'unallocated account' and handle that after the end of the year.

you only spoke of 'forfeiting' the unintitled to match. If this is a self directed account, then the person is not entitled to the gains/loss either. that is ugly enough. in the likely case the person has more than one investment, how do you propose calculating the amount of gains to be forfeited?

At the 2009 ASPPA Conference Q and A #33

A plan provides for a discretionary match which is computed on an

annual basis. All participants share in the match. To avoid a large

contribution at the end of the year, the employer contributes (for

example) a 100% match on deferrals not exceeding 4% of

compensation on a payroll basis throughout the year. Is there a

violation of the timing of contribution regulations if the employer

computes and funds the match this way, and then deposits any

possible match true-up at plan year-end?

Under the final 401(m) regulations, you cannot prefund matches before they are

earned. Therefore, we will assume for purposes of this question that no requirements

apply in regard matching contributions. On that basis, we are concerned that the

allocation violates the terms of the plan, which provides for an annual allocation.

ughhhhhhhhhhhhhhhhhhhhhhhhhhh. you have prefunded a match. a clear violation based on the IRS comment

[austin3515]

Tom:

Is this the reg they are referring to? IF so, it seems to me they made a mistake here. IT clearly says you can't deposit the match unless the 401k to which i relates is earned - it doesn't say "not until the match is earned."

(iii) Employer contributions not on account of an employee contribution or elective deferral —(A) General rule. Employer contributions are not matching contributions made on account of elective deferrals if they are contributed before the cash or deferred election is made or before the employees' performance of services with respect to which the elective deferrals are made (or when the cash that is subject to the cash or deferred elections would be currently available, if earlier). In addition, an employer contribution is not a matching contribution made on account of an employee contribution if it is contributed before the employee contribution.

[BG5150]

I once worked with a plan document that stated if a plan used the last day rule (and I think hours rule), and any ER contributions (that required the last day rule) were deposited before year end, then the ER was deemed to have waived the last day requirement.

At first I thought it was kinda silly, but now I think it's a great way to run a document. No messy forfeitures or participant complaints.

[Guest Sieve]

On the other hand, BG, if cash is an irregular commodity for an employer, then forcing the employer to wait until after year-end to make a discretionary contribution is a sure way for the available cash to dissipate to creditors first and potentially eliminate the discretionary contribution entirely--especially in these economic times.

Of course, once a discretionary contribution goes into the plan, even if early, it cannot be removed under mistake of fact.

[Guest Moira]

On the other hand, BG, if cash is an irregular commodity for an employer, then forcing the employer to wait until after year-end to make a discretionary contribution is a sure way for the available cash to dissipate to creditors first and potentially eliminate the discretionary contribution entirely--especially in these economic times.

Of course, once a discretionary contribution goes into the plan, even if early, it cannot be removed under mistake of fact.

I have this very situation, and due to the sale of a small division, there is a good amount of money sitting that was ongoing match that had been funded that was not earned and therefore "reversed" from the participant accounts. I KNOW that the funds cannot be returned to the employer but they are insisting we cite a specific regulation that says this. Is there one regulation or piece of code that I can provide them? I haven't gotten the right combination of search terms into the ERISA Outline Book, evidently, to find this piece of info. Thanks.

[QNPG]

The Corbel document will notify you that this is an error (during validation) when you try to impose a last day requriement on a payroll by payroll match. If I am not mistaken, the entire section pertaining to the EOY req would grey out when the payroll option is chosen. There is also some mention in the commentary to that question that it is not allowed.